PROFESSIONAL RESEARCH

(a) CON 1, Par. 32. The objectives begin with a broad focus on information
that is useful in investment and credit decisions; then narrow that focus
to investors and creditors primary interest in the prospects of receiving
cash from their investments in or loans to business enterprises and the
relation of those prospects to the enterprises prospects; and finall y
focus on information about an enterprises economic resources, the
claims to those resources, and changes in them, including measures of
the enterprises performance, that is useful in assessing the enterprises
cash flow prospects.

(b) CON 1, Par. 7. Financial reporting includes not only financial statements
but also other means of communicating information that relates,
directl y or indirectl y, to the information provided by the accounting
systemthat is, information about an enterprises resources, obligations,
earnings, etc. Management may communicate information to those
outside an enterprise by means of financial reporting other than formal
financial statements either because the information is required to be
disclosed by authoritative pronouncement, regulatory rule, or custom or
because management considers it useful to those outside the enterprise
and discloses it voluntaril y. Information communicated by means of
financial reporting other than financial statements may take various forms
and relate to various matters. Corporate annual reports, prospectuses,
and annual reports filed with the Securities and Exchange Commission
are common examples of reports that include financial statements,
other financial information, and nonfinancial information. News releases,
managements forecasts or other descriptions of its plans or expecta-
tions, and descriptions of an enterprises social or environmental impact
are examples of reports giving financial information other than financial
statements or giving onl y nonfinancial information.

(c) CON 1, Par, 24 and 25: 24. Many people base economic decisions on
their relationships to and knowledge about business enterprises and
thus are potentiall y interested in the information provided by financial
reporting. Among the potential users are owners, lenders, suppliers,
potential investors and creditors, employees, management, directors,
customers, financial anal ysts and advisors, brokers, underwriters, stock
exchanges, lawyers, economists, taxing authorities, regulatory authorities,



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PROFESSIONAL RESEARCH (Continued)

legislators, financial press and reporting agencies, labor unions, trade
associations, business researchers, teachers and students, and the
public. Members and potential members of some groupssuch as
owners, creditors, and employeeshave or contemplate having direct
economic interests in particular business enterprises. Managers and
directors, who are charged with managing the enterprise in the interest
of owners (paragraph 12), also have a direct interest. Members of other
groupssuch as financial anal ysts and advisors, regulatory authorities,
and labor unionshave derived or indirect interests because they advise
or represent those who have or contemplate having direct interests.

Potential users of financial information most directl y concerned with a
particular business enterprise are generall y interested in its ability to
generate favorable cash flows because their decisions relate to amounts,
timing, and uncertainties of expected cash flows. To investors, lenders,
suppliers, and employees, a business enterprise is a source of cash i n
the form of dividends or interest and perhaps appreciated market prices,
repayment of borrowing, payment for goods or services, or salaries or
wages. They invest cash, goods, or services in an enterprise and expect
to obtain sufficient cash in return to make the investment worthwhile.
They are directl y concerned with the ability of the enterprise to generate
favorable cash flows and may also be concerned with how the markets
perception of that ability affects the relative prices of its securities. To
customers, a business enterprise is a source of goods or services, but
onl y by obtaining sufficient cash to pay for the resources it uses and to
meet its other obligations can the enterprise provide those goods or
services. To managers, the cash flows of a business enterprise are a
significant part of their management responsibilities, including their
accountability to directors and owners. Many, if not most, of their
decisions have cash flow consequences for the enterprise. Thus,
investors, creditors, employees, customers, and managers significantl y
share a common interest in an enterprises ability to generate favorable
cash flows. Other potential users of financial information share the
same interest, derived from investors, creditors, employees, customers,
or managers whom they advise or represent or derived from an interest
in how those groups (and especiall y stockholders) are faring.


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PROFESSIONAL SIMULATION


(a) The term accounting principles in the auditors report includes not
onl y accounting principles but also the practices and the methods of
appl ying them. Al though the term quite naturall y emphasizes the pri-
mary or fundamental character of some principles, it includes general
rules adopted or professed as guides to action in practice. The term
does not connote, however, rules from which there can be no deviation.
In some cases the question is which of several partially relevant princi-
ples are applicable. Neither is the term accounting principles neces-
saril y synonymous with accounting theory. Accounting theory is the
broad area of inquiry devoted to the definition of objectives to be served
by accounting, the development and elaboration of relevant concepts,
the promotion of consistency through logic, the elimination of faulty
reasoning, and the evaluation of accounting practice.

(b) Generally accepted accounting principles are those principles (whether
or not they have onl y limited usage) that have substantial authoritative
support. Whether a given principle has authoritative support is a
question of fact and a matter of judgment. The CPA is responsible for
collecting the available evidence of authoritative support and judging
whether it is sufficient to bring the practice within the bounds of
generall y accepted accounting principles.

With implementation of the Codification, what qualifies as authoritative is
any literature contained in the Codification. The Codification changes
the way GAAP is documented, presented, and updated. It creates one
level of GAAP which is considered authoritative. All other accounting
literature is considered non-authoritative.

What happens if the Codification does not cover a certain type of trans-
action or event? In this case, other accounting literature should be
considered which includes FASB Concepts Statements, international
financial reporting standards and other professional literature.


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PROFESSIONAL SIMULATION (Continued)

For example, other evidence of authoritative support may be found in the
published opinions of the committees of the American Accounting Asso-
ciation and the affirmative opinions of practitioners and academicians
in articles, textbooks, and expert testimony. Similarly, the views of stock
exchanges, commercial and investment bankers, and regulatory commis-
sions influence the general acceptance of accounting principles and,
hence, are considered in determining whether an accounting principle
has substantial authoritative support. Business practice also is a
source of evidence. Finall y, because they influence business practice,
the tax code and state laws are sources of evidence too.

1-28 Copyright 2013 J ohn Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only)

IFRS CONCEPTS AND APPLICATION

IFRS 1-1

The two organizations involved in international standard-setting are IOSCO
(International Organization of Securities Commissions) and the IASB
(International Accounting Standards Board.) The IOSCO does not set
accounting standards, but ensures that the global markets can operate in
an efficient and effective manner. Conversel y, the IASBs mission is to
develop a single set of high quality, understandable and international finan-
cial reporting standards (IFRSs) for general purpose financial statements.

IFRS 1-2

The standards issued by these organizations are sometimes principles-
based, rules-based, tax-oriented, or business-based. In other words, they
often differ in concept and objective.

IFRS 1-3

A single set of high quality accounting standards ensures adequate
comparability. Investors are able to make better investment decisions if
they receive financial information from a U.S. company that is comparable
to an international competitor.

IFRS 1-4

The international standards must be of high quality and sufficientl y
comprehensive. To achieve this goal, the IASB and the FASB have set up
an extensive work plan to achieve the objective of developing one set of
world-class international standards. This work plan actuall y started in 2002,
when an agreement was forged between the two Boards, where each
acknowledged their commitment to the development of high-quality,
compatible accounting standards that could be used for both domestic and
cross-border financial reporting (referred to as the Norwalk Agreement).


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IFRS 1-4 (Continued)

At that meeting, the FASB and the IASB pledged to use their best efforts to
(1) make their existing financial reporting standards full y compatible as
soon as is practicable, and (2) coordinate their future work programs to
ensure that once achieved, compatibility is maintained. This document was
reinforced in 2006 when the parties issued a memorandum of understanding
(MOU) which highlighted three principles:

Convergence of accounting standards can best be achieved
through the development of high-quality common standards over
time.
Trying to eliminate differences between two standards that are in
need of significant improvement is not the best use of the FASBs
and the IASBs resourcesinstead, a new common standard should
be developed that improves the financial information reported to
investors.
Serving the needs of investors means that the Boards should seek
convergence by replacing standards in need of improvement with
jointl y developed new standards.

Subsequentl y, in 2009 the Boards agreed on a process to complete a
number of major projects by 2011, including monthly j oint meetings. As
part of achieving this goal, it is critical that the process by which the
standards are established be independent. And, it is necessary that the
standards are maintained, and emerging accounting issues are dealt with
efficientl y.

The SEC has directed its staff to develop and execute a plan ( Work Plan )
to enhance both the understanding of the SECs purpose and public
transparency in this area. Execution of the Work Plan (which addresses
such areas as independence of standard-setting, investor understanding of
IFRS, and auditor readiness), combined with the completion of the
convergence projects of the FASB and the IASB according to their current
work plan, will position the SEC in 2011 to make a decision on required use
of IFRS in the U.S. issuers. After reviewing the progress related to the Work
Plan studies, the SEC will decide, sometime in 2011, whether to mandate
the use of IFRS. It is likel y that not all companies would be required
immediatel y to change to IFRS, but there would be a transition period in
which this would be accomplished.


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